PARIS -- Shares in Fiat Chrysler Automobiles and Renault fell sharply in early trading on Thursday after their $35 billion-plus merger plan fell apart only 10 days after being made public, with FCA blaming French politicians.
French finance minister Bruno Le Maire said the government, which has a 15 percent stake in Renault, had engaged constructively in talks, but had not been prepared to back a deal that was not supported by Renault's current alliance partner Nissan.
Nissan had said it would abstain at a Renault board meeting to vote on the merger proposal.
The collapse of the deal, which would have created the world's third-biggest automaker behind Toyota and Volkswagen, revives questions about how both FCA and Renault will meet the challenges of costly investments in electric and self-driving cars on their own.
The merger had aimed to achieve 5 billion euros ($5.6 billion) in annual synergies, with FCA gaining access to Renault's superior electric drive technology and the French firm getting a share of FCA's lucrative Jeep and RAM brands.
FCA has long been looking for a merger partner and previously held unsuccessful talks with PSA Group, in which the French state also owns a stake.
FCA's decision to end the talks could also further fray relations between Renault and Nissan, already strained by the arrest and ouster of alliance Chairman Carlos Ghosn, who is now facing trial in Japan on financial misconduct charges he denies.
It could add, too, to investor frustration with France, which has a long history of intervening in company matters.
"With FCA pulling its merger offer, one has to wonder how much the French state is set on limiting Renault's strategic and valuation opportunities despite having only a 15 percent stake," analysts at brokerage Jefferies wrote in a note to clients.
However, the French government was under pressure at home to take a tough line, as the merger talks were conducted against the backdrop of a French public outcry over 1,044 layoffs at a General Electric. The U.S. company had promised to safeguard jobs there when it acquired France's Alstom in 2015.
The failure of the deal is also likely to stoke political tensions between France and Italy.
"When politicians try to intervene in economic matters, it doesn't always help. I won't comment further, if FCA withdrew its offer it's because it didn't see an economic advantage, or other type of advantage," Deputy Prime Minister and 5-Star leader Luigi Di Maio told Italian state radio.
At 08:40 CET, Renault shares were down 7.1 percent at 52.22 euros. FCA shares in Milan were down 1.9 percent at 11.48 euros.
"An agreement had been reached on three of the four conditions. What remained to be obtained was the explicit support of Nissan," Le Maire said.
French budget minister Gerald Darmanin said he hoped the door had "not closed" on the possibility of a deal, adding Paris would be happy to re-examine any new proposal from FCA.